Did China profit from corrupt Sri Lanka deals?

How Sri Lanka plans to stamp out corruption
How Sri Lanka plans to stamp out corruption

It's the kind of project that can make a legacy: A massive port complex, complete with luxury hotels and fancy shops, constructed on an artificial island.

Mahinda Rajapaksa, the former president of Sri Lanka, was the driving force behind such a project, a $1.4 billion crown jewel to be built near Colombo by a state-backed Chinese construction firm.

But in the three months since Rajapaksa was unseated in an election stunner, the project has been put on hold, and allegations of possible corruption in the bidding process have tarnished the former president's reputation.

Sri Lanka's new president, Maithripala Sirisena, has directed his administration to investigate all deals signed by the previous government, looking for irregularities in contract negotiations.

Sirisena's government claims that many deals signed during the former president's rule, like the Port City project, did not go through the proper approval process. The number of deals under review is likely in the hundreds, worth billions of dollars.

Chinese companies are at the center of the storm. Rajapaksa had worked to develop close ties with Beijing, often at the expense of relations with New Delhi and the West. During his administration, Chinese firms won lucrative contracts to build roads, bridges and other large projects.

Related: Chinese investors trade way more often than Americans

Sri Lanka's new finance minister, Ravi Karunanayake, didn't pull any punches on the matter, telling CNN that many infrastructure deals involving Chinese firms are suspect.

"The Chinese companies used the opportunity of a corrupt regime to crowd out other companies coming in," he said. "There was no even playing field."

Bridges were built where there were no rivers, he said. Airports were constructed in the middle of nowhere. "That was the type of corruption that was going on," he said.

Asked which deals were tainted by corruption, Karunanayake replied with a question of his own: "Which deals weren't?"

Rajapaksa, the former president, was not able to be reached for comment. But in an interview with the South China Morning Post, he defended his actions and said China was being used as a political scapegoat.

"I wanted development for Sri Lanka and China was the only one which had the resources and the inclination to help me," he said. "They should be thankful to China for the help they extended; instead these people are treating China like a criminal."

China's Ministry of Foreign Affairs did not respond to a request for comment.

Related: The strong dollar is hurting emerging markets

Sri Lanka, traditionally seen as being in India's sphere of influence, is strategically important to both New Delhi and Beijing.

While it has put the Port City project on hold, the new administration is keen to stress that its close ties to China remain intact. Sirisena traveled to China within two months of being sworn in, and Beijing has pledged around $1 billion in new grants.

Karunanayake described the current relationship with Beijing as "very warm."

"It wasn't just Chinese companies," Karunanayake said. "It was basically anybody who achieved their objective, to get money in their pockets."

Still, the new leadership is keen to re-balance Sri Lanka's international partnerships.

"We now have an open invitation to the world. We would like to see anybody good bringing the best of investments to Sri Lanka," the new finance minister said.

"It could be India, China, the U.S., Europe, Myanmar, Maldives," he said. "We want a clean, transparent and accountable approach, which helps people to see 'yes the rule of law works in Sri Lanka.' "

The new government itself has pledged to stamp out corruption at government level within its first 100 days.

"We too have to walk the talk," said Karunanayake.

Social Surge - What's Trending

Mortgage

CNNMoney Sponsors